Krugman: Can Japan pull it off?

Can Japan actually end decades of deflation?

Paul Krugman examines former Bank of England Monetary Policy Committee member Adam Posen's attempts to square the circle between his support for expansionary fiscal stimulus in Britain — where it hasn't happened — and opposition to the same in Japan — where it is apparently about to begin.

Posen wrote, in the Financial Times, that:

Mr Abe’s new fiscal stimulus initiative is therefore questionable. Not because another 2 per cent of GDP will be the proverbial tipping point on Japanese debt sustainability, for the factors protecting Japan from overt fiscal crisis remain. Nor because it will be ineffective; if anything, when combined with monetary expansion and a likely consumption tax rise in the near future, I expect its multiplier and thus short-run impact to be high.

The additional stimulus in Japan is counterproductive because it adds to the long-term costs without addressing Japan’s real problem: a return to deflation and an overvalued exchange rate.

Krugman is "a bit puzzled". He agrees that deflation is Japan's problem, because deflation forces short-term interest rates to bump against the lower bound. Since interest rates can't go below zero, that is, they are forced to remain slightly positive. That means that real interest rates — the nominal interest rate plus inflation — are forced to be significantly higher under deflation than they would be with mildly positive inflation, reducing the effectiveness of monetary policy.

So far, so macroeconomics 101. Where Krugman disagrees with Posen is how to break out of the deflation trap. Posen argues that unconventional monetary policy — quantitative easing and the like — can be enough. It's a monetary problem, so it ought to have monetary solutions. But Krugman argues that there may be a better way:

The credibility of a higher inflation target in the face of the deflationary bias of central bankers may well be best established by (a) reducing the central bank’s autonomy and (b) getting the central bank in the business of supporting — indeed, monetizing — government deficits, at least for a while. Gauti Eggertsson made this point long ago (pdf), pointing to Japan’s successful polices in the first half of the 30s as a clear example. Indeed, Gauti argued that having a large government debt can be a real advantage in such circumstances: efforts to raise expected inflation gain extra credibility if the government would clearly benefit in fiscal terms, and the central bank is sufficiently subordinated to elected officials that investors believe that it will take these fiscal benefits into account.

In other words, it all comes back to the question of central bank independence. If the government destroys that independence (even if it does it for paleo-conservative, nationalistic, reasons), and engineers a situation where inflation would make it better-off, then inflation expectations can be raised far higher than an independent central bank could ever do alone. Especially one which has so consistently failed to reverse the trend as the national bank of Japan.

Visiting Japanese Prime Minister Shinzo Abe speaks during a joint press conference held after official talks with his Vietnamese counterpart. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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The Brocialist’s Dilemma: joining the revolution inevitably leaves others behind

We have to remember that other people have priorities, which might clash with our hero-worshipping of politicians like Jeremy Corbyn and Bernie Sanders.

It was Tony Blair who got me used to compromising my values for the sake of party unity and electoral success. After I voted for him in 2005, I knew in my heart that I could talk myself into voting for anybody if it kept the Tories out. Sure he’d planned and waged a war of aggression with disastrous consequences for millions of people, but he hadn’t privatised the railways. I’m not an Iraqi, I’m a guy who travels by train.

Having taken the Blair masterclass in compromising ideals, watching Jeremy Corbyn getting dragged over the coals for his various missteps all feels rather trivial. I found myself wondering just what it was going to take for Corbyn, who I don't dislike and will vote for, to outrage me to the extent that I’d want him gone.

Hell, I voted for the man who brought in university fees. I voted for him, and I knew as I did it that –had I been born just a few years later – there’s no way I’d have been able to go to university. I don’t know what Corbyn might do that would be a compromise too far given those I’ve already had to make over the years.

Left wing politics will always come with compromises, but what is telling is who has to make the biggest ones. We all want a unified and functional opposition, maybe one day a shot at government, but can we expect Jewish party members to simply ignore the failure to handle antisemitism in the party, or women to ignore so much about recent Labour selections?

It seems, at times, that what matters in Corbyn’s Labour is the new found sense of ideological purpose, rather than the trickier practical business of ensuring everybody is fairly treated and properly represented.

This brings us to the titular Brocialist Dilemma, because this is something that many of the men in the party will face whether they realise it or not. “Brocialist” is a generally pejorative term that tends to be applied to pugnacious white men piling into left wing or radical politics with earnestly held good intentions but little empathy and experience – and even less awareness of their lack thereof.

The Brocialist Dilemma is one born of coming into politics by choice looking to Fight the Good Fight, rather than having the Good Fight thrust upon you.

The dilemma is that if you are engaging with politics because you are an idealist looking to solve problems, which problems do you solve first? And whose problems do you push to one side in order to solve those problems? Where do you make your compromises?

You have to figure out who you’re willing to go to bat for and who you’ll let fall behind. There is no guide book for this, no master list of all the things that need to be fixed in left wing politics before it can be wheeled out like a massive cake to bring about global utopia.

We are all raised on stories of heroes leaping to the aid of the downtrodden for altruistic reasons. Plenty of us want to be that hero, but the shock of finding out that our personal intervention is not the tipping point in the struggle that we hoped it might be can be disheartening.

Nobody expects to answer the call to action only to be told to take a seat while the beneficiary of your munificence tries to find you something that you are qualified to help with.

More importantly than the disheartening effect on the enthusiastic would-be hero is the potential damage that can be done to the body politic itself. When thousands of energetic crusaders rally to the cause – intent on saving the world – but decide that your particular issues within that are less important, that your insistence on pursuing the agenda you got into politics to pursue is damaging, then we can see all kinds of unpleasantness.

It is not a coincidence that when you get huge numbers of highly engaged new people piling into a political cause that they bring with them what can charitably be called complications. I choose that word carefully because I’m still optimistic enough to believe that – for all the bile and spite being hurled around the Labour party in recent months – everybody is still, on a fundamental level, trying to do right.

Jeremy Corbyn is a huge draw for brocialists in much the same way as Bernie Sanders was in the US. This isn’t a complaint; you do want a leader who can motivate people, who can draw people into politics. Corbyn comes across like the wise old shaman who turns up in stories to guide the hero on the start of his journey to greatness. He is Obi-Wan Kenobi to a generation of left wing men who can see the world is an unjust place but don’t know exactly what they need to do to change it other than joining The Rebellion.

If there is a solution to the Brocialist Dilemma, perhaps it lies with Corbyn. What lesson can we take from the man himself? Is it to never compromise, to stick to your principles against all the odds? Perhaps. But also, and I would say more importantly, it is patience. Corbyn has spent decades campaigning for the causes he believes in, standing on picket lines, going on demonstrations – not always popular, though often right in hindsight.

At no point in his long and storied history of activism did Corbyn read the first volume of Das Kapital on his phone before getting bored and calling somebody a Blairite on Twitter.

If people can find the patience to learn, and the patience to teach, then perhaps we might all make it through this period in Labour’s history in a spirit of mutual respect. Otherwise we’ll be spending the rest of our lives calling each other names.

Phil Hartup is a freelance journalist with an interest in video gaming and culture